Bank policymaker favours early interest rate increase

THE Bank of England should raise interest rates sooner rather than later to contain inflation, bank policymaker Andrew Sentance was quoted as saying yesterday.

The Daily Mail quoted Mr Sentance as saying that a planned rise in VAT sales tax next week to 20 per cent from 17.5 per cent would push inflation above four per cent.

Mr Sentance, the most hawkish member of the Bank's nine-strong Monetary Policy Committee, has repeatedly called for a rise in rates. He was alone in supporting a rise at the committee's December policy meeting, according to the minutes.

Rising inflation would force the bank gradually to raise rates from the record low of 0.5 per cent, the newspaper quoted Mr Sentance as saying.

It did not give the context of Mr Sentance's remarks which it said were made on Wednesday.

"If we delay too long in raising the official interest rate and inflation continues to be a problem we risk making sharper rises in the future," Mr Sentance said.

"In my view, that poses a bigger threat to confidence and to the recovery than starting to raise interest rates gradually now," he said.

British inflation rose to a six-month high of 3.3 per cent in November, the 11th consecutive month it has been at least a percentage point above the Bank's 2 per cent target.

The newspaper quoted Mr Sentance as saying higher rates "could benefit the economy."

"It would help to protect savers from the effects of higher inflation by raising the return on their savings deposits,'' he was quoted as saying.

"It is clearly important that interest rate rises do not derail the recovery," Mr Sentance said.

"That suggests we should aim for a gradual rise in interest rates which gives businesses and individuals time to adjust their finances," he said.

"A gradual rise in the official Bank rate from a record low level of 0.5 per cent should be seen as a positive signal that the economy is beginning to return to normal after the recession," he added.

Mr Sentance was appointed to the MPC in 2006.

He is also a part-time professor of sustainable business at the University of Warwick, based at Warwick Business School, and a member of the Commission for Integrated Transport, which provides advice to the Government on transport policy issues.

Before joining the Bank of England, Mr Sentance was chief economist and head of environmental affairs at British Airways.

He was one of the five senior managers appointed in 2001 to prepare the company's "Future Size and Shape" turnaround plan.

He joined British Airways in 1998 from London Business School, where he was director of the Centre for Economic Forecasting.